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Hobbit tax rebate swells to over $67m

Paul McBeth

New Zealand taxpayers lent a $67.1 million helping hand via tax rebates for the making of Peter Jackson's movie The Hobbit in the first two years of actual production, according to its financial statements.

The movie, produced by Warner Bros Entertainment subsidiary 3 Foot 7, reaped $46.9 million from New Zealand's large budget screen production grant in the 12 months ended March 31, according to statements lodged with the Companies Office.

That added to the $20.2 million tax rebate it received in 2011, the first year it got the subsidy.

Shooting on The Hobbit: An Unexpected Journey wrapped in early July, meaning the company should be able to claim a further rebate in the 2013 period.

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The subsidy over the two years amounts to about 14.6 per cent of the $459.6 million production cost incurred over the 2011 and 2012 financial years, just below the 15 per cent of locally incurred costs that can be claimed back in tax under the scheme, known as qualifying New Zealand production expenditure.

New Zealand is coming under pressure to raise the subsidy as the weak US dollar eats into Hollywood studios' margins.

Last month producer James Cameron, who used Wellington-based Weta Digital for his Avatar film, told TVNZ's Q&A programme Prime Minister John Key discussed "the idea of possibly altering the rebate scheme to keep pace with the change in the dollar" with studio executives on a whirlwind visit to Los Angeles.

The Hobbit production company narrowed its loss to $8.2 million in the 2012 year from $70.4 million a year earlier.

The way the production is financed means filming costs are covered by interest free loans from New Line Cinema.

3 Foot 7 can then satisfy that debt, plus take a margin, by charging production service fees once filming is completed.

The company lifted its production service fee to $266.3 million in the 2012 period, from $50.1 million a year earlier.

That left $27.6 million in outstanding production advances, as at March 31.

Wellington will host the world premiere of the first Hobbit film on Wednesday, and the capital's City Council has put up $1.1 million for activities.

The movie trilogy, originally slated for two films became a political football in 2010, and saw Mr Key step in to broker a deal with Warner Bros executives amid fears the production could be shipped somewhere cheaper as local actors sought to firm up their working conditions.

That saw the government give the studios an extra subsidy of up to $US15 million per movie for spending more than $200 million, expanding what spending qualifies for the rebate under the existing rules, and changing employment law to classify all film workers as contractors by default.

It would also stump up $US10 million to market local tourism as part of The Hobbit's release.